Page 53 - Insurance Times February 2021

Finance minister Nirmala Sitharaman increased the foreign Thus, it has proposed that ULIPs where the annual premium
direct investment (FDI) limit in the insurance sector from paid of over Rs. 2.5 lakh would be treated as equity oriented
the existing 49% to 74%. "I propose to amend the Insurance funds. The rate of tax will depend on period of holding.
Act, 1938 to increase the permissible FDI limit from 49% to The government also announced that two public sector
74% in insurance companies and allow foreign ownership banks and one general insurance company will be privatised
and control with safeguards," finance minister said while and LIC will be listed on the bourses in the financial year
presenting the Budget 2021-22.
2021-22 as part of the consolidation in the banking and
In 2015, the government hiked the FDI cap in the insurance insurance sectors.
sector from 26% to 49%. The government has earlier Union Budget of 2021-2022 has given a major thrust on
allowed 100% foreign direct investment in insurance accelerating capital requirement through divestment and
intermediaries. Intermediary services include insurance increase in FDI in the insurance sector. The Vehicle Scrappage
brokers, reinsurance brokers, insurance consultants, policy will help in sales of new Motor Vehicles and in turn will
corporate agents, third party administrators, surveyors and contribute to the Increase in New Motor Premium. The
loss assessors.
increase in FDI, announced by the FM, from 49% to 74% in
Second announcement in Budget was made in respect of Insurance Sector will give a major boost to the Insurance
taxation of ULIPs. Tax exemption on maturity proceeds of Industry and will help in garnering more capital, improve
ULIPs or the unit linked insurance plans offering components solvency and retention capacity within our Country. The Budget
of both life insurance and investment, in debt and equity, proposes to privatize One Public Sector Company in FY 2021-
will be available only if the annual premium paid is upto Rs. 22, which is a good move to bail out cash starved PSU and
2.5 lakh. improve efficiency. Also, the LIC IPO proposed in FY 2021-22
The Budget proposal will apply to ULIPs purchased on or will increase the capital Market and allow government with
after February 1. However, the amount received on death, its divestment process and reduce the Fiscal Deficit. - Mr. Sumit
by nominee, will continue to remain exempt without any Bohra, President, Insurance Brokers Association of India (IBAI)
limit on the annual premium. & CEO, GlobeSecure Insurance Brokers Pvt. Ltd.
"For annual premium above Rs. 2.5 lakh for ULIPs, the maturity The COVID-19 pandemic has shown that further penetration
benefit will now be taxed as Capital Gains. Thus, the budget of insurance in India is needed and for that capital infusion
endeavours to selectively bring in taxation parity between life is required. The FDI hike will give the foreign promoter an
insurance companies and mutual funds," said Rushabh Gandhi, opportunity to buy out their cash-strapped Indian partners
Deputy CEO, IndiaFirst Life Insurance Company. if required and provide the needed cash infusion,"
VighneshShahane, managing director and chief executive
Under existing provisions of the Income Tax Act, there is no officer, Ageas Federal Life said.
cap on the amount of annual premium paid by any person
during the term of the policy. Stating this, the Budget Commenting on the announcement, Shanai Ghosh, executive
documents said, "Instances have come to the notice where director and chief executive officer, Edelweiss General
high networth individuals are claiming exemption under this Insurance said, "This move will help increase avenues to
clause by investing in ULIP with huge premium. Allowing bring in capital inflows in order to realise the full potential
such exemption in policy/policies with huge premium defeats of Insurance in the country. This move will help strengthen
the legislative intent... to provide benefit to small and the sector and also help further penetration of insurance in
genuine cases of life insurance." the country, which still is far behind the world average."

The Insurance Times, February 2021